TAB Saga Gets More Interesting as Tabcorp Enters the Frey

Victoria's juggernaut gambling operator, Tabcorp, on Wednesday announced intentions to buy out New South Wales' TAB ltd., which is already one month into merger discussions with Queensland's UNiTAB. The Australian Stock Exchange later revealed that it was planning an investigation into irregular trading in shares of all three of the gambling companies just before Tabcorp placed its bid.

If TAB decides to accept Tabcorp's offer, it will have to renege on its merger agreement with UNiTAB last month. A merger between UNiTAB and TAB would have created the second largest betting company in Australia, rivaled in size only by Tabcorp. The unit would control the betting market in Queensland, New South Wales, the Northern Territory and South Australia and could expect to generate wagering turnover of $4.9 billion per year.

Since Tabcorp is a much larger company than UNiTAB, a TAB and Tabcorp merger would produce a company that would be seven times larger than its closest rival, UNiTAB. The new company could expect $900 million in EBITDA and would operate four casinos, 400 retail outlets for totalisator and fixed-odds betting, and 18,000 gaming machines in NSW and Queensland.

Tabcorp says it's offering a better deal to TAB's shareholder's than what UNiTAB is offering. TAB's shareholders would receive 23 shares in Tabcorp and AU$162 for every 100 shares of TAB, which equates to about AU$4.26 for every TAB share. Tabcorp also values TAB at a 16 percent premium to its share price yesterday.

TAB isn't likely to accept the deal anytime soon. The group said in a prepared statement, "The proposal is stated to be incomplete and subject to a number of conditions and is not capable of being accepted." It added, "At this point, shareholders are advised to take no action in relation to Tabcorp's proposal."

Several complications already exist for newly proposed merger. First, TAB would be required to pay AU$500 million to UNiTAB for severing their agreement. The deal would also require some amendments to NSW law as well as approval from the Australian Competition and Consumer Commission.

Tabcorp's managing director. Matthew Slatter, told the Australian Associated Press that the move is not an act of aggression, but his company will persist in this venture.

"It is not a hostile bid," Slatter e said. "We don't want the circumstances to be unfriendly. We want to work with the TAB board to get the best outcome for TAB shareholders and also for Tabcorp shareholders.

"But if they reject the proposal, we believe that proposal stands on its own merits and we will be looking to pursue that proposal, even if the TAB board decides to reject it."

Meanwhile, more than 2,000 NSW options contracts were exchanged just before the merger proposal was announced. The Australian Stock Exchange has said it will look into the matter to determine whether early trading on inside information had taken place.